CASE STUDY

ON
EASTERN CONDIMENTS PVT. LTD.
 Q1. WHAT DO YOU THINK
OF EASTERN’S PERFORMANCE IN KERALA? GIVE
REASONS FOR YOUR OPINIONS.

• Eastern dominated the spices market in Kerala and was slowly expanding to other
states. In Kerala, it has an enormous 47% market share
• About 67% of Eastern’s revenue comes from the Kerala marketing itself with
three factories in Adimali, Okkal, Kavalangad that have a huge hold in the market
• The performance of Eastern in Kerala was exceptional with a CAGR of 46.79%
and a growth in the revenues from Rs 286 M to Rs 1.95 B from 2003 to 2008
 Q2. WHAT METRICS  HAVE YOU USED TO REACH
YOUR JUDGEMENT?

• The CAGR growth rate for revenues was 47%5. The current ratio increased
enormously from 1.4 to 4.18 which hinted towards high liquidity of assets as well as
efficiency in operations
• Lower prices of Eastern Condiments as well as large amount of capital proved to be
a competitive advantage over the local vendors
• The largest contribution to the company’s revenue was from Kerala as mentioned in
the exhibit- it was Rs 286 million to 1.95 billion
• Leveraging customer preference as they would prefer having fresh and hygienic
spices instead of spices offered by local vendors
 Q4 IS KARNATAKA A GOOD CHOICE FOR
EXPANSION?

We think Karnataka is a good choice for expansion because:-

• Karnataka has the highest population of Malmails after Kerala
• First mover advantage in non-vegetarian segment in Karnataka which already flourished in
Kerala.
• Low level of competition

• Most of the retailers are Malayalis.

 Q5.HOW IS THE PERFORMANCE IN
KARNATAKA? WHAT IS THE BASIS OF YOUR
VERDICT? WHY DO YOU THINK THIS OUTCOME HAS
HAPPENED?

There are both pros and cons in the performance in Karnataka

Pros

• First mover advantage in terms of non vegetarian segment in Karnataka

• Competitors focused mainly on veg segment so non-veg segment was untouched

Cons

• Eastern retailers provided resistance

• Relationship with retailers and hiring advantages of Kerala didn’t work in Karnataka

• Poor inventory management as they couldn’t forecast the demand

• Credit based sales system of Karnataka didn’t help with cash sales system which was prevalent in Kerala
 Q6. WHAT WERE THE EXPERIENCES IN
OTHER CITIES LIKE MUMBAI?

• Handling over full distribution channel in Mumbai didn’t work well

• In 2005, Eastern outsourced distribution for Mumbai to a partner for a margin of 20%. While the
operation was profitable, it soon ran into trouble on scale up issues
• Low Malayali population led to less consumer pull
• Top management was not there to guide the sales force due to which there was no motivation and
a lot of mismanagement. This led to high staff turnover
 Q7.  WHAT ARE THE OPTIONS THAT ANJAN HAS
FOR EASTERN'S FUTURE IN KARNATAKA? WHAT
SHOULD ANJAN DO IN KARNATAKA FOR EASTERN? SUPPORT
YOUR SUGGESTION WITH ANALYSIS OF CASE DATA  GROUP

Anjan has the following options to help Eastern grow in Karnataka region :

1.Company owned model - Eastern in order to keep the cost low could go for company owned model. Reduce the time for inventory carried
from 60 days to 45 days. Reducing the running cost to Rs 3000 by going for weekly cycle. Train the salesperson like they did in case for Kerala.
Reduce maintenance and working capital expense

2. Entrepreneurship model – Just like the success in Bangalore, it can be replicated here as it keeps the company cost low. Lack of consumer
pull, low demand for new products, finding new entrepreneurs in Karnataka was some drawbacks. But challenges such as low demand for new product can be met
by pushing new product, promotion offers, and giving buy back offer for unsold stock.

Out of these two model's entrepreneurship model will be much better choice because: -

• It is given in Exhibit 2 that company managed to bring down the distribution cost to 10.5% of sales (under entrepreneurship model) from 11.4% (under owned model). However, it is noticeable that net
income growth in not so significant i.e. 23,510 from 17,670

• Company is able to save salesman and drivers compensation and the other running expenses which contributes a lot under company owned distribution channel. Eastern trained these entrepreneurs and
handled them the delivery vans that were almost completely depreciated. That’s how company saved on the depreciation expense as well (Exhibit 2)

• Since Entrepreneurs invested their own capital, cash and stock leakages disappeared and profitability of the company improved. It kept them motivated to perform better as their income depended on it
and the ownership of the trucks was transferred to them.
Q8) CARRY OUT THE ECONOMIC COMPARISON OF RESULTS IN
KERALA AND KARNATAKA TO SUPPORT THEIR VERDICT ON
KERALA/KARNATAKA PERFORMANCE.

• The growth of sales from 2002-03 to 2007-08 was 367% (Kerala) and 792% (Karnataka).
• Low level of competition in the market in Kerala. Along with good customer loyalty
• First mover advantage for veg as well as non veg segment in Kerela
• The efficiency of the salesman is increasing in both the regions over the years.
• The high level of competition in Karnataka from MTR.
• Majority of the focus is on Malyali outside Kerala.
• PBT in Kerala is growing but in Karnataka is is a contrary scenario.
 Q9) – WHAT ARE THE FINANCIAL DETAILS FOR A COMPARISON OF THE
OWNED VERSUS ENTREPRENEUR DISTRIBUTION MODELS FOR
KARNATAKA. SUPPORT YOUR RESPONSE IN THE CLASS WITH RESPECT
TO THE DIFFERENT OPTIONS.

• Choosing Entrepreneur distribution system over Owned distribution system has increased the net
income of the company by 1.3 times.
• Salesperson has more incentive to work in an Entrepreneur distribution system as the incentive is
38% higher.
• The Compensation received by a salesperson for the Entrepreneur distribution system (32333) is
more than the Owned distribution system (23420).
• In Entrepreneur distribution model the cost as the percentage of sales decreased from 11.4% to
10.5% than owned distribution system.